Why Debt Counselling is a better option than Insolvency
Debt Counselling is a relatively new service introduced to help consumers who are struggling to manage their monthly debt responsibilities. The service helps consumers by restructuring their repayments, and renegotiating the interest rates on the outstanding debts.
The main benefit of approaching a debt counsellor as opposed to declaring yourself insolvent is that your assets are protected from repossession.
By declaring insolvency you are essentially giving your creditors permission to liquidate your assets to reclaim a portion of your outstanding debts.
Also, once you have been declared insolvent and your debts have been written off it may take more than 5 years before you are able to apply for credit again.
With debt counselling, you are able to hold on to your assets and you are given clear credit report as soon as your debt have been paid in full. Meaning you are free to apply for a home loan or car loan, and begin rebuilding your life again.
The only negative of the debt counseling process would be that because your monthly repayments are smaller it is going to take you much longer to pay off your debts, and you may end up paying much more in interest charges, over the full term of the loan.
But, this process does allow you to pay extra every month, thereby shortening the term and lowering the total interest charge.
Insolvency allows you to write off up to 90% of your debt, but you’ll lose your house and cars.
Debt Counseling allows you to keep you home but you’ll have to repay the full loan over a longer period.